Inflation and retirement savings are two words that don’t go well together—or do they? When you’re saving for retirement, inflation can seem like a huge financial stumbling block, but it doesn’t have to. In this article, we’ll discuss how it affects your money and what steps you can take to protect your savings from its effects.

Inflation is typically considered a problem, but with a comprehensive financial plan crafted with a Tennessee financial advisor, you can take the proper actions to ensure your retirement savings will conquer all conditions.

Inflation is considered problematic because it means your money is worth less. As the rate of inflation increases, your savings will buy less and less. It can also make it more difficult to save money: when prices rise, people tend to spend more in an effort to keep up with them—and to spend money on things that aren’t considered necessities can be tough for most households.

Here’s where the ground gets shaky, which we must address first and foremost.

Avoid capitulation – don’t sell out and convert everything to cash

We are beginning to hit a point in this market cycle where investors want to capitulate; sell out of everything and convert to cash. 

Retail investors are known to capitulate at lows, with a long history of doing so just before the markets turn upward. By capitulating, retail investors effectively give up all possibility of recovering in a reasonable amount of time. Some never recover and have no one to blame but themselves.

Capitulation also involves abandoning their financial plan. Plans are customized to each client and then extensively stress tested. Stress tests clearly illustrate whether or not you will be able to successfully achieve your financial goals when corrections, bear markets, and recessions occur. 

There is nothing comfortable about a bear market or recession. Everyone is uncomfortable and uncertain. But it doesn’t make sense to abandon a well thought out plan that has worked successfully for years, especially when that plan has carried you through previous similar conditions.

If your plan and stress test results are clear, you should be okay, but only so long as you do not abandon your plan. 

What can you do about inflation?

Inflation is a tricky beast to tame. There’s no one-size-fits-all strategy for keeping it in check, but there are some general guidelines that will help keep your nest egg on track.

First, know what you’re up against—inflation can be sneaky! It might not seem like much of an issue when you’re young, and your income is growing along with rising prices. But don’t let yourself get complacent; the effects of inflation add up over time and have the potential to devastate your savings if they’re left unattended.

Next, make sure you have enough money set aside for emergencies before reducing contributions to better protect against inflationary pressures on investments. If an unexpected expense arises (like having to replace the roof), extra cash on hand will make it easier to deal with cost increases without taking drastic measures. 

Assess the possibilities – retiree sources of income

In addition to Social Security, retirees can draw on several other sources of income. 

Pension plans include federal government employee pensions, military, and private sector pensions. 

Annuities are often sold to protect retirement savings from the risk of outliving one’s money. An annuity is an investment that pays a lifelong stream of income in exchange for making an up-front payment (usually made with cash).

401(k)s and 403(b)s are tax-sheltered retirement savings plans offered through employers, while 457s are similar but available to state and local government employees and some nonprofits. 

IRAs (individual retirement accounts) allow you to save for later without being taxed while funds build inside the account. 

There are Roth IRAs which pay no taxes when funds are withdrawn during retirement age after they’ve been deposited long enough without any withdrawals whatsoever (these have some strict eligibility requirements). 

ESOPs (Employee Stock Ownership Plans) let employees share in profits from their places of employment. They’re usually structured so that each year’s profits go into stock purchase plans instead of being distributed directly among employees who then use those funds however they’d like. 

Here are five investment options to explore with a Greeneville, TN, financial advisor at Sapiat

If you’re worried about inflation and want to ensure that your retirement savings are safe, Sapiat Assets Management looks forward to helping you explore your methods for saving and investing. If you’ve been putting off saving for a rainy day, now is the time to get started. If you’re already saving, increase how much money you save as much as possible without reducing other necessities.

You may want to start considering these investments to help combat periods of volatility and high inflation.

1. Cryptocurrency is an exciting outlet to get into as technology advances.
2. Consider investing in index funds or real estate (or both).
3. Consider diversifying into precious metals or other commodities. 
4. Since inflation may be higher than many investments’ growth rate, consider purchasing stocks that perform better during higher inflation like oil and energy sectors. 
5. Real estate usually fares very well during volatile markets.

If you take these steps now, you’ll be far more prepared for the future

If inflation is starting to make you fret about your retirement savings, here are some steps you can take now to prepare for the future:

• Make sure that you have a comprehensive financial plan in play that accounts for a strong retirement savings. If you don’t know where your money will go when you stop working, it’s time for a change.
• Hire a Tennessee financial advisor who can help guide and support your investments. It’s essential to find someone who has expertise in certain areas of investment management, such as the emerging world of digital assets. At Sapiat, we are able to provide solid guidance based on what kind of portfolio would be best suited for your situation and risk tolerance.
• Save as much as possible while working so that when it comes time to settle into your golden years, plenty will be left over after all expenses are paid each month.
• Estimate how long you’ll live in retirement and consider what your needs will be. This helps determine how much money you’ll need to save before retirement age. 
• Look into new ways to diversify your portfolio so that if one investment option performs poorly while others do well, the overall performance of your portfolio won’t suffer too much. 

Read: Should You Get a Second Opinion on Your Estate Plan? (Yes!)

Conclusion

If you’re worried about how inflation may affect your retirement savings, there are a variety of options to explore and follow through with. The most important thing is to take action now and steer clear of capitulation. If you wait until inflation has already started affecting your finances, your nest egg might be depleting quicker than you realize.

A comprehensive financial plan built with the help of Sapiat can help you through periods of volatility and high inflation. 

No matter the market, we are here to serve as your financial ally. Discuss your ideas of retiree sources of income with a financial firm in Greeneville, TN, you can trust. 

Start a conversation or request and appointment to sit down and take the time to discuss inflation and retirement savings strategy. 

Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.